Brevan Howard Offshore Management Limited (the "Manager") is the manager of Brevan Howard Global Master Fund Limited. Gunther Thumann, CEO of Brevan Howard Group Holdings Ltd. ("BHGH"), which is the parent of the Manager, has provided the following year-end update on the Manager's operations:

During 2009, the Manager worked with its investment managers to further strengthen trading talent and the Brevan Howard trading platform commensurate with the growth of assets under management.

All of the open-ended hedge funds managed by the Manager posted positive year-end NAV/share gains as detailed below:

Source: BHAM

*The inception date of Brevan Howard Credit Catalyst Fund Limited Class A USD Shares was 1^st August 2009.

The closed-ended listed funds managed by the Manager also performed well with BH Macro and BH Global producing NAV returns in their USD share classes of 18.04% and 14.31% respectively during 2009. BH Macro and BH Global are respectively the largest and second largest single manager hedge funds listed on the London Stock Exchange and both are FTSE 250 companies. Together, these companies had more than US$2.850bn under management at year end and are therefore an important part of Brevan Howard's business.

The Manager reported in its last quarterly update that it was considering the establishment of an additional affiliated investment manager in Geneva. Brevan Howard Group Holdings Ltd. has now secured premises in Geneva and it is intended that investment management operations will commence during the course of 2010. BHGH and the Manager believe that the Geneva office will be a valuable addition to their global group of investment managers and will provide access to high quality staff and infrastructure.

The Manager appreciates the continued support of shareholders during 2009. In 2010, it will continue to seek further opportunities to strengthen and diversify its access to talent and resources on a global basis to ensure that all Brevan Howard managed funds remain positioned to exploit trading opportunities.

Brevan Howard Asset Management LLP ("BHAM") currently manages the largest allocation of the Underlying Funds' assets. BHAM's CIO, Alan Howard, has provided the following year end update to the Manager on BHAM's operations:

Although 2009 was somewhat less eventful than 2008 in terms of market activity, it proved to be an equally successful year for BHAM in terms of fund performance and operational improvements.

We have restructured many of the collateral and margin agreements for the Brevan Howard funds so that counterparty risk is no longer a major concern. We have also continued to focus on reducing tail risk by further simplifying exposures and controlling gross and less liquid positions across all of our funds; in the case of Brevan Howard Master Fund Limited the gross size of the securities portfolio did not change materially during the year, and the number of less liquid OTC positions came down by 30% (after a fall of 50% in 2008).

As I reported in the September 2009 Shareholder Report, the BHAM investment team was substantially enhanced last summer with the appointment of Fabrizio Gallo from Morgan Stanley as head of equities and Mark Hillery from Tudor Asset Management as a senior trading partner. Both Fabrizio and Mark have already made a significant contribution to our capabilities by broadening the scope of assets we trade and attracting further talent to the firm. Both have fully integrated into BHAM, and in Mark's case it feels as if he had never left our old Credit Suisse team.

There were no material departures in 2009. Jean-Philippe Blochet, one of our founding partners, formally resigned from the firm in December with our good wishes; JP spent most of 2008 on sabbatical and did not trade for the firm during 2009. Although we are always prepared to bring talent into the firm when it is available, I do not anticipate any significant additions or changes to the trading team in the immediate future.

As to the macro outlook, capital markets stabilised at the end of the first quarter of 2009 after a shaky start and risk assets staged a spectacular rally during the rest of the year. The prospect of an indefinite period of monetary and fiscal stimulus, coupled with moderate growth and tame inflation, is proving an irresistible lure for increased risk appetite. However, we continue to believe that the macro environment is highly unstable. I do not think we have ever had a situation where two diametrically opposed potential outcomes, a deflationary bust and an inflationary spiral, can be credibly argued with equal conviction.

The very significant potential of one or the other severe outcome is due to the underlying structural weaknesses in many developed market economies, such as the US and UK, which are being offset for the time being by massive fiscal, monetary and unconventional responses such as zero rates, bank guarantees, asset purchases etc. The primary risk is of a policy error, or the market's fear of a policy error. This event risk is compounded by the extreme difficulty policy-makers will have in effectively communicating their intentions to the market. 

This macro background leads us to focus on four broad themes:

·      Higher Volatility:  The "Great Moderation" period saw lower macro and policy volatility. Going forward we believe that there will be a higher volatility macro environment, which is ideally suited to our trading style.

·      "Lower-for-longer" in the US:  According to the Blue Chip consensus forecast, nominal GDP will grow by 4% by the end of 2010.  Nominal growth at such a low level would be among the worst performances witnessed during an expansion.  In many ways, the recovery would still feel like a recession. Under these conditions, it is hard to see how the Fed can begin to raise rates any time soon.

·      Differentiation:  In response to the financial crisis and global recession, most developed and developing countries have pursued some combination of aggressive monetary and fiscal policies. But not all economies have the same structural problems, so the outcomes have differed widely.  Going forward, an important theme for us is the degree of differentiation that will emerge among countries that pursued similar treatments but realized different outcomes. We believe that such differentiation bets are a major opportunity.

·      Emerging Markets:  We believe in a secular shift in favour of growth in emerging market economies with solid fundamentals versus G7 economies. These countries have growing domestic demand, and have room for interest rates to move down as investors grow comfortable with responsible monetary/fiscal stewardship. The danger with this theme is that it is very much consensus and therefore extremely crowded. Any challenge to the global growth story could cause a sharp and painful correction; consequently, trade construction which limits mark-to-market loss and allows positions to be held through a correction is of paramount importance.

Given these broad trends, and other more specific situations, such as the massive issuance of sovereign debt, we believe that the opportunity set for trading remains exceptionally rich.

As always, all of us at BHAM thank you for your continued support and we remain totally committed to delivering another profitable performance in 2010.

Allocations of BHGO by fund estimated as at 31 December 2009 (allocations of BHGO are subject to change):

Source: BHAM; figures rounded to one decimal place

Exposures by strategy estimated as at 31 December 2009 (% of total VaR; excludes cash exposure) - allocations of BHGO are subject to change:

Source: BHAM; figures rounded to the nearest whole number

In December, BH Global delivered its 11th positive monthly performance for 2009.  Brevan Howard Credit Catalysts Master Fund Limited ("BHCC") and Brevan Howard Equity Strategies Master Fund Limited ("BHES") delivered the highest returns for the month. Brevan Howard Emerging Markets Strategies Master Fund Limited ("BHEMS") was the only negative performer.

The final performance of BH Global for 2009 was +14.3% for the USD share class and +14.1% and +14.3%, respectively, for the GBP and EUR share classes.  This was delivered with a Sharpe ratio of ~2.5x. With respect to performance drivers of 2009, approximately 45% of the total performance came from Brevan Howard Master Fund Limited ("BHMF") and 34% from BHEMS.  The only performance detractor was BHES, a fund where exposure had been reduced during the course of the year. The recent performance of BHES has shown significant signs of improvement and the Investment Committee has revised its expectations and is considering re-allocating to BHES.  The Investment Committee is also encouraged by the continued outstanding performance of BHCC and is likely to increase its allocation to this fund in due course.

The Investment Committee are aware of the potential forthcoming tender offer and has been mindful of this when considering capital allocations.